Issues at stake in Trump-China summit in Florida

President Donald Trump faces his biggest test as a world leader when he meets Chinese President Xi Jinping this week for a summit that will set the tone for perhaps the most consequential of U.S. foreign relationships.

The two leaders are expected to struggle to find common ground on the main issues that divide them when they meet on Thursday and Friday at Trump’s Mar-a-Lago resort in Florida.

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The main agenda items are:

NORTH KOREA

Perhaps Trump’s most pressing national security challenge. North Korea has been working to develop nuclear-tipped ballistic missiles capable of reaching the United States. Trump is expected to repeat his call for China to do more to rein in its ally and neighbor and has warned that Washington might deal with Pyongyang’s weapons programs alone if need be.

China says it is doing all it can and has said it is up to the United States to de-escalate with Pyongyang.

A White House strategy review focuses on options for pressuring Pyongyang economically and militarily. Among measures under consideration are “secondary sanctions” against Chinese banks and firms that do the most business with Pyongyang.

A long-standing option of pre-emptive strikes remains on the table, but the review “de-emphasizes direct military action,” a senior U.S. official said. Any military action would likely provoke severe North Korean retaliation and massive casualties in South Korea and Japan and among U.S. troops stationed there. TRADE

Trade is one of the biggest hot-button issues, given Trump’s charges in his presidential campaign that Chinese trade practices were killing U.S. jobs and his vow to impose 45 percent tariffs on Chinese imports.

The administration has not acted on unilateral tariffs but is targeting a reduction in China’s $347 billion goods trade surplus through tougher enforcement of trade laws and anti-dumping and anti-subsidy duties.

Commerce Secretary Wilbur Ross has also demanded “reciprocity” in the U.S.-China economic relationship, saying that U.S. companies do not enjoy the same access to China’s vast market as Chinese firms get in the United States.

China says Washington should create better conditions for Chinese investment in the United States if it wants to correct the imbalance.

Neither side wants a trade war, but it may be hard to do much more than lower the temperature in Mar-a-Lago.

Some analysts believe Xi may bring a package of job-creating Chinese investments and the prospect of a more open services sector that Trump could tweet as tangible achievements.

SOUTH CHINA SEA

Relations are also clouded by China’s expansive claims in the disputed South China Sea, where Beijing has been building artificial islands and installing military facilities on them.

U.S. officials see this as part of a long-term Chinese bid to deny U.S. forces access to the strategic sea, a key global trade route.

They say Washington plans more robust naval operations to challenge Chinese claims and assert the right to freedom of navigation, though months have passed since the last one in October under Trump’s predecessor Barack Obama.

The situation in North Korea has appeared to push the South China Sea onto the back burner for now, but Trump is expected to air U.S. concerns.

CURRENCY

Trump has repeatedly charged that China manipulates its yuan currency to keep its exports cheap, and he is likely to raise the issue with Xi. But Trump did not make good on his promises to formally declare China a currency manipulator on the first day of his presidency.

While economists believe China pushed down the value of the yuan in the past, China’s central bank for much of the past two years has been working to prop up the yuan, amid capital outflow pressures, spending more than $1 trillion in the process.

This would make it very hard to justify a manipulator designation under the U.S. Treasury’s current foreign exchange analysis, due one week after Xi’s visit.

“ONE CHINA” AND TAIWAN

The summit would not be happening if Trump had not reaffirmed the “one China” policy that has underpinned relations for decades. Trump infuriated Beijing when, as president-elect, he took a call from Taiwan’s president and suggested he might not abide by the policy. He backtracked in a call with Xi in February.

Xi may now be looking to head off a big new weapons package to Taiwan that U.S. officials have told Reuters is being crafted.

For its part, Taiwan will be watching anxiously for any sign that Trump is using it as a bargaining chip.

(Reporting by Matt Spetalnick, David Brunnstrom and David Lawder; Editing by James Dalgleish)

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